In Focus

Buffett's Berkshire Pie

If you haven't read the article in the Chicks Eye View on mutual funds, please do. It explains what a mutual fund is, how it is sold to the public, what fees you have to pay, and why mutual funds are not the "Chick thang" for an investment. But what if I told you that there was something mutual fund-ish available on the market that has been more successful than any of the mutual funds in history, and has beaten the S & P 500's average annual rate by 12% per year? And it may very well be Chickie! It's similar to a mutual fund, but isn't one -- it is stock in a conglomerate of companies.

Years ago, thirty-six to be exact, a man by the name of Warren Buffett was so frustrated with the investment community and their enormous fees for selling mutual funds, that he decided that he would create his own. He pooled together a group of companies, companies that he either owned or owned shares in, and re-sold shares of it to the public through his own company, Berkshire Hathaway. (BRK.A and BRK.B)

Warren looks for companies with strong earnings, companies he understands, companies that have good fundamentals and that are going to be around for a long long time... and he buys them. Then he adds them to his conglomerate of companies held within the Berkshire Hathaway melting pot, adds it to the pie if I may mix metaphors, and sells pieces of that pie to the public under the ticker symbols of BRK.A and BRK.B. If he can't buy 100% of them, he buys pieces (or shares) of them. The other day, he scooped up 8% (7.7 million shares) of H&R Block. When he sees a bargain, he makes a deal.

Just what companies are in his Berkie pie? If you like meat, it's in there. If you like pumpkin, that's in there too. Apple? Strawberry? Rhubarb? It's all there. Diversification is what holds a Berkie pie together. He mixes in tons of industries from insurance companies to shoe stores, and furniture stores to paint manufacturers. The companies in his prosperous pastry include:

Insurance Companies  National Indemnity, Geico, General Re, United States Liability

Flight Services Companies  Flight Safety, Executive Jet

Furniture Stores  Nebraska Furniture Mart, R.C. Willey, Star, Jordan's Cort Business Services (rental furniture)

Jewelers  Ben Bridge Jewelers, Borsheims

Others  MidAmerican Energy (utility company), Justin Industries (bricks and boots), Shaw Industries (carpets), Benjamin Moore (paint), Johns Manville (roofing products), Buffalo News (newspaper), Dairy Queen (duh), See's Candies, and Scott Fetzer (a diversified company that owns World Book, Kirby vacuum, and 19 other companies). For more a la mode, you can check out Berkie's website at www.berkshirehathaway.com.

Take a closer look at that pie... what's missing?

Technology.

Our Mr. Pie-Maker stays away from technology because he doesn't understand it. He feels that if he can't understand a company, he can't possibly predict their future. There are millions of investors who wish they had stuck to that philosophy last year. In the year 2000, Berkshire's stock rose 26% while the S&P fell 11%. The tech-heavy Nasdaq felt the biggest burn, losing more than 34%.

Not only does Warren know and understand these companies, he is their #1 Public Relations man. Spreading the news and sharing the pie with others is what every good chef has the right to do, especially if your dessert is that good. In a message to Berkshire's website readers, he encourages everyone to get a discount on all of their insurance needs at Geico, and to peruse the jewelry at Borsheims, where, of course, they will get the best deals. Berkshire's annual shareholder meetings are a shopping bonanza of Berkshire owned stores. Starting with cocktail hour at Borsheims (how dangerous this would be for me), then moving onto Nebraska Furniture, and finally finishing at Executive Jet for a tour of the latest plane. I'm wondering if buying some shares of BRK would be worth it just for the deals alone at the shareholders meeting.

Of course, buying those shares is no bargain. One share of BRK.A is $71,200. Uh-huh, $71,200. Warren prides himself on never splitting his stock, so he hasn't. The amazing thing is, that stock started out at only $12 per share. That means if you had put $1,000 into Berkshire in 1965 (it would have made a great gift for my first birthday), today it would be worth almost six million dollars. I can't name a company that has had that kind of success, which makes Mr. Buffett fully deserve that white chef's cap and his title of Stock-Picking God.

But who can afford to dish out seventy thousand bucks? Enter, BRK.B! It's the same business and the same stock at the core, but BRK.B is 1/30th the price of BRK.A. It's like slicing your piece of the pie into slivers, like thirty of them, so everyone can share the treat, which is precisely why Warren spun it off. The slivers of BRK.B are going for $2,300.

I'm not a fan of mutual funds, or index funds for that matter, but Berkshire Hathaway is different. You buy and sell it like a stock (because it is a stock), yet it still gives you the diversification of a mutual fund. And, as has been proven year after year, it wins the taste-test every time. I'd sure like to get my hands on a piece of that Berkie-pie.